Asciano Group (AIO)

UBS has upgraded
Asciano
to “buy" from “neutral" following the stock’s underperformance in recent months and on the expectation that growth for the ports and rail operator was more certain than other cyclicals. The broker noted that Asciano has fallen 10 per cent relative to the Australian industrials index in the past three months and is trading on a 15 times price-earnings multiple to its 2010-11 earnings forecast.

This is a “small premium" for the growth expectations of around 20 per cent a year in 2011-12 and 2012-13, the broker says. “We estimate 60 per cent of this growth is already secured under take or pay contracts, with the remainder driven by a cyclical recovery in volumes and a continuation of management’s success in operating efficiencies."

“Positive catalysts are bulk rail contract momentum and volume recovery in the containerised and automotive divisions," UBS adds. While there are no evident downside risks, some negative sentiment drivers remain. These include the federal government’s resources tax, the dispute with the Queensland Government over the ownership of the Queensland Rail (QR) Network and uncertainty around new competition in the Port of Melbourne. The broker has trimmed its price target on the stock by 10¢ to $2 a share to account for its downward revision in the broader market valuation.